9 Auto Risks Construction Companies Face and How to Avoid Them

Introduction

There comes a point in any construction company's existence when it grows beyond its vehicle capacity.

However, purchasing new vehicles is not something lightly done. In the past, construction companies have rented vehicles to make up the shortfall and even asked employees to use their personal vehicles for work purposes.

These are creative solutions, but a company cannot push the liability onto their employees, or their rental supplier.

The following is an examination of various auto risks unique to construction companies. Not only for those who own their entire fleet of vehicles, but also for those who have a mix of owned and alternatively supplied vehicles.

These risks are:

Qualifying Drivers

Annual Safety Courses

General Coverage Under Single Limit Liability Insurance

Uninsured and Underinsured Motorists

Hired Auto Liability Hired Physical Damage

Non-Owned Liability

Hired Physical Damage

Mounted Equipment to Trailers and Vehicles

Vehicle Maintenance

Before we start, one thing to understand is that there are two main categories of risk to insure against with auto insurance – 1. Liability and 2. Comprehensive and collision coverage.

The other two important coverages are bodily injury and property damage. Both commercial and personal liability insurance include all four of these coverages and more.

The biggest difference between commercial auto and personal auto is the amount of coverage. Commercial auto can give a policyholder coverage well up into the millions of dollars; personal auto cannot do that.

This is because human error is by far the most common source of claims. In fact, the biggest exposure for a company is its fleet of vehicles on the road. With this in mind, there are several things to think about:

Unsafe employee drivers

Off the clock use of company vehicles

Fatigued employee drivers

Distracted employee drivers

Some employees should not be allowed to drive company vehicles.

They have lead feet, take turns too fast, tailgate, etc. Before you let an employee have the keys to a company vehicle, you should run a background check and get driving records from the department of motor vehicles.

If an employee does not drive well, or worse, their driving is unsafe, then it is a huge risk of exposure to allow that employee to drive your vehicles or equipment. Worse, if that employee gets in an accident, your lack of vetting could invalidate your insurance. When in doubt, don’t allow an employee to drive your company vehicles.

Employees with off-hours access to company vehicles need guidelines.

It is not enough to allow an employee to use their personal judgment in the driving of a company vehicle during off hours. If you allow an employee to drive a company vehicle off the clock, it is important to give detailed rules for operation during that time.

Examples include:

Not letting others drive the vehicle

Zero tolerance for drinking and driving

Listing young drivers in the household

Limits on personal use

Allowing a fatigued employee to drive a company vehicle is bad practice.

Fatigue slows down reaction time and hampers the brain’s ability to make quick decisions while driving. More than half the accidents on the road result from lapses in attention 3 seconds before the accident.

These lapses in attention are mostly the result of fatigue and distracted driving. While not against the law per se, a fatigued driver is more likely to get into an accident.

Distracted driving is a significant contributor to accidents on the road. It can be minimized with a few preventative measures.

First, modify your vehicles for handless phone usage. This can be as simple as installing a clip to hold a phone, or as complicated as installing Bluetooth interfaces.

Alternatively, a policy of pulling over if you have to take a call could be enacted. Realistically, pulling over for every call may be impractical, but is the safer practice.

A step further would be to ban consuming food and drink while driving company vehicles, but that might be a challenge to enforce.

2) Annual Safety Courses

Ideally, each employee should take a refresher course on transportation safety yearly. But we do not operate in an ideal environment.

The advantage of having a periodic refresher course in safety is a mindset of alertness in your crew that will result in fewer accidents over time. If you cannot have each employee take a safety course each year, then a good compromise is having your foremen and supervisors take a safety course.

When they finish, they can spread best practices throughout your crew.

There are many excellent courses out there; some are administered as classes, others administered as video courses on the internet. The decision on what type of course chosen should depend on which is more useful for the learners.

A good resource for finding appropriate local classes is OSHA. OSHA does 10-hour training for workers, and 30-hour training for supervisors.

Taking an OSHA training will get the trainee a certification card. Certification is not required to work but is a nice thing to have. Providing safety training also provides a signal on the priorities you want to emphasize in your job sites.

3) General Coverage Under Single Limit Liability Insurance

A more recent approach to auto insurance liability is single limit liability insurance. Single limit liability insurance is not the standard in commercial insurance.

Single limit liability provides a flat amount per incident to cover both bodily injury and property damage. This gives peace of mind to the insured, knowing that there is a large limit covering them no matter what the circumstance.

Example:

You have a single limit liability policy with coverage of 500k per single incident.

If you were to get into an accident in a company vehicle and are at fault, and the other motorists’ file claims against you, those claims losses would be paid out of that 500k coverage.

In this example, the accident did 10k damage to the other vehicle and the other motorist had to go to the emergency room and eventually incurred medical expenses totaling 40k. The total claims for the incident, 50k, would be paid out of the 500k coverage for that single incident.

Single limit liability coverage eliminates the need to carry both high liability and property limits for car insurance, or for a supplemental umbrella policy to make up for shortfalls in liability and property coverage. This is because the single limit per incident is used to pay both liability and property claims.

It does not matter if an incident has a low amount of property claims and a high amount of liability claims, or vice versa since it is all paid out of the same pot. This single pot approach saves money because of the efficiency of coverage.

4) Uninsured and Underinsured Motorists

Suppose you get into an accident with a motorist, it’s their fault, and they don’t carry enough insurance to pay for the damage done to your vehicle? What if they didn’t have any insurance to begin with?

Uninsured motorist coverage deals with the losses where the at-fault motorist does not have liability coverage. Underinsured motorist coverage deals with the remainder of a loss where the at-fault motorist’s insurance isn’t enough to cover the damage done.

Typically, uninsured and underinsured motorist coverage matches the amount a person or a business has on their liability and property damage frontline coverages.

Example:

You have uninsured and underinsured motorist coverage and have 100k / 300k limits on liability and property coverage. You are moving a crane on the road when a motorist clips your trailer, causing the crane to fall to the roadside, causing you whiplash and doing 50k damage to the crane and trailer.

The motorist has 15k liability and 30k property coverage on their personal policy. Your medical expenses from the whiplash total 10k, all of which is covered by the motorist’s insurance.

If you had 15k/15k/30k limits, insurance would only pay out a total of the 15k per accident. Your uninsured and underinsured motorist insurance will make up the difference, paying the remainder of the damage, 20k. A personal policy will only pay the single accident limit, not the total policy aggerate.

Uninsured and underinsured motorist coverage is not required by most state driving laws. However, if a person or business declines this coverage after an agent has recommended it, they might require a waiver to be signed saying they offered it, but the prospect declined the coverage. The waiver would save an agent from being sued.

5) Hired Auto Liability

If a business declines this coverage and they rent, hire, borrow, or otherwise commission a vehicle for work purposes, that vehicle is most likely not insured under your company’s auto insurance. While there might be some insurance associated with the vehicle from the rental place, if there is a loss while the vehicle is being operated by you or an employee, then the company could responsible for part of, if not most, of the liability.

Example:

You rent a pickup truck because one of your company trucks is in the shop. One of your employees takes the pickup to get more cement for the job site.

On the way back from the warehouse the employee gets into an accident, rear-ending another motorist. She has a slight case of whiplash, and the hospital bills and treatment end up totaling 10k.

The employee's auto insurance will not pay, because he was driving for work purposes. The company's auto insurance may not pay, because the pickup was a rental and not covered under the company’s auto policy.

Having this type of insurance covers bodily injury and property damage when an owner or employee operates a rented, hired or borrowed vehicle. Hired auto coverage is offered as a supplement to an existing auto insurance policy for a company.

6) Non-Owned Liability

Much like hired auto insurance, non-owned auto insurance covers bodily injury and property damage on vehicles that do not belong to the company but are used for company business. Typically, non-owned auto insurance covers situations where employees use their personal vehicles to conduct company business.

Example: An employee with no company vehicle uses their own vehicle to drop off a company parcel to the post office. That employee gets into an accident while delivering the parcel. The resulting lawsuit would be covered under non-owned liability coverage.

One might think that if an employee has insurance on their vehicle that there is no exposure for the company. Not so.

While being used for work purposes, including simple errands, a company has exposure when an employee uses their own vehicle. This is because of a long-held legal doctrine that holds the actions of a subordinate at the bidding of a supervisor are the responsibility of the supervisor. This chain of responsibility extends to the company.

Like hired auto liability, non-owned liability exists as a supplement to an existing auto insurance for a company.

7) Hired Physical Damage

Both hired and non-owned auto insurance cover losses inflicted on the other parties by those vehicles. They may not cover the damages to the operated vehicle itself.

For instance, suppose you rent a vehicle for the company and take out hired auto coverage. You get into an accident, totaling both another vehicle and your rental.

Your hired auto covers the other vehicle, but not your rental. To cover your rental for damage, there is hired physical damage coverage.

This coverage will cover you from losses stemming from damage to the vehicle you rent.

Example:

You rent an extra pickup truck to move dirt on a job site. At the site, the pickup is taking a load of dirt along an earthenware levee, which collapses.

The pickup rolls down the levee, a hitting a bystander who suffers some injuries, and the pickup suffers some damage to the frame as well as some major cosmetic damage. Your hired auto coverage pays for the hospital bills but does not pay for the damage to the pickup.

In this example, the damage to the pickup would be covered under hired physical damage coverage.

8) Mounted Equipment to Trailers and Vehicles

Mounted equipment coverage, also known as mobile equipment insurance, is a supplemental rider to auto insurance.

Automobiles for insurance purposes are land motor vehicles, trailers, or semitrailers, designed for use on public roads. Their primary use is the transport of people or property on public roads.

Mounted/mobile equipment, however, may be transported on public roads, but is intended for use off public roads. As such, it is not covered under automobile policies, but as a supplemental rider to a company’s auto insurance.

Misc. catchall category for other vehicles not used for transportation of people or property

Again, mounted/mobile equipment coverage will have two components, liability coverage, and physical damage coverage. Depending on state laws, one might need to purchase additional insurance every time such property is transported on public roads.

Example:

You have moved a wrecking ball to your job site. The ground on which it rests is not as stable as believed and during transport the ground shifts.

This shift caused the rig to topple over and damage the building on an adjoining property. No one was injured, but the damage to the neighboring building totaled 30k in repairs.

The 30k in damages to the neighboring building would be covered by mounted/mobile equipment coverage because it covers non-automobile vehicles.

9) Vehicle Maintenance

It seems obvious, but keeping your vehicles in good running order will cut down on accidents.

While an attitude of don't bring it in unless there's something wrong might seem to save money, staying on top of maintenance will cut down on unexpected vehicle shortages due to repairs.

Keeping a vehicle in the company fleet until it dies might seem thrifty, but again, the downtime spent replacing a dead vehicle is wasteful, disruptive to the workflow and produces unexpected demands on cash flow.

Far better to establish a maintenance schedule, and schedule out vehicle retirement and replacement. This also applies to any machinery your company owns.

Example:

You let your vehicle fleet age as long as the vehicles are operational.

During the last couple of years, a couple of pickups have cost over 5k in repairs, and eventually one breaks down in the middle of a job. You rent a pickup and have the company pickup towed to an auto shop, where the mechanic charges money for a diagnostic.

The cost to repair the pickup is more than its total value. You end up buying a new pickup, adding an unexpected car loan to your monthly operations budget, as well as the cost of the rental before buying the new pickup.

The trade-in value for the old pickup is low, given its non-operational status.

Also related to vehicle maintenance and keeping your fleet in good operating order, proper liner covers for truck beds and dump trucks ensure that loose equipment and/or materials do not fall off and cause hazards or damage to other vehicles on the road.

Conclusion

The best outcome of managing your risk coverage is not to use your insurance at all by not having any accidents. One can reduce the likelihood of that by examining who is doing the driving amongst your employees, and make sure that you are making smart choices about who drives.

When those accidents do happen, you can rest assured knowing you have done your due diligence and gotten an appropriate portfolio of insurance coverage. You will have taken into account the type of vehicles you operate, whether they are rentals, owned by you, or owned by employees.

Take a look at your own situation to make sure you’re properly mitigating risk.

Consider whether your operation uses mobile equipment or more conventional on-road vehicles. Also, examine whether you are on a single limit coverage or a more traditional split limit.

These are the kind of things you want to consider. Have you taken a look at your business picture as a whole, and discussed risk mitigation with your insurance agent?